United States Attorney
Southern District of New York
September 13, 2010
U.S. Foodservice to Pay United States $30 Million to Resolve Civil Fraud Allegations
NEW YORK – The Department of Justice has reached a settlement of a civil fraud lawsuit against U.S. Foodservice Inc. (USF), a major food supplier to the U.S. Department of Defense (DOD) and the Department of Veterans Affairs (VA), announced Preet Bharara, U.S. Attorney for the Southern District of New York. According to the settlement, which was approved today by U.S. District Judge John F. Keenan, USF agreed to pay $30 million to the United States to resolve fraud charges that the company used shell companies to fraudulently overcharge DOD and the VA for food products that USF supplied under contracts with the United States, including contracts to supply food for American service men and women serving at military bases in the United States.
According to allegations in the complaint filed in Manhattan federal court, from at least 2000 until 2005, USF fraudulently inflated the prices it charged the United States under its cost-based contracts to supply agencies of the United States with food products. Under its contracts with the United States, USF was allowed to charge only the price it paid for acquiring each product the government ordered plus a contractually pre-determined add-on fee. Instead of charging the government the actual cost and add-on fee contractually agreed-upon, USF charged the government a falsely-inflated price.
USF perpetrated this scheme by creating shell companies which were known within USF as “third party billing entities” and later as Value Added Service Providers (VASPs). USF directed the VASPs to purchase goods from specified vendors at pre-negotiated prices. USF then instructed the VASPs to “resell” the same goods to USF. At the direction of USF, the VASPs created invoices reflecting that the price “charged” to USF was the resale price, rather than the actual amount that the VASPs paid to the vendors. USF billed the United States the higher amount shown on the VASP invoice. The VASP invoice, though, was not USF’s actual cost of acquiring the food products; rather, after USF “paid” the VASPs for the food products, the VASPs passed back to USF the entire difference between the actual cost of the food products and the inflated amount charged to the government, less a small transaction fee.
As a result of the scheme, USF received millions of dollars from the United States to which it was not entitled.
In the complaint, the United States charges USF with violations of the False Claims Act, common law fraud, unjust enrichment and other claims.
“Skimming money off the top of valuable government contracts cheats all of us, said U.S. Attorney Bharara. “Today’s $30 million recovery represents a substantial accomplishment for this Office's Civil Frauds Unit and a significant return for taxpayers. It also sends the clear message that we will hold accountable entities that engage in fraudulent business practices with the United States.”
The case is being handled by the Office’s Civil Frauds Unit. Assistant U.S. Attorneys Mara E. Trager, Jeffrey S. Oestericher and Joseph N. Cordaro are in charge of the case.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney. Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in
The charges and allegations contained in the complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.